I know. I know. Why am I worried about the next student loan I’m going to pay off when PSL3 is still lingering? Well, did you not read this blog subheading? One OBSESSIVE post at a time. Further, I sometimes have analysis paralysis where my need to investigate all options to a level of minutiae result in me procrastinating or not making a decision until it is too late…which sometimes results in me making a poor choice. So, you’re judgement of me aside…
In September of 2020, I asked the Pennyfolk which loan I should payoff next. Six of the eight responses said PSL3. I began targeting PSL3 in December 2020 and next month, assuming no unforeseen obstacles, it should be paid off. While paying off PSL3 is my primary focus, looking down the road just a bit helps me keep focus on exactly why I make the day to day financial choices that I do. Because it’s not just PSL3, it’s all the financial choices I will need to make long after PSL3 is paid off.
As I stated in my 2021 Financial Goals post, the plan this year has very much been to pay off PSL3 and then PSL4, and finally rid myself of 1) PSL3’s egregious interest rate, 2) AES as a student loan servicer, and 3) the large minimum payment associated with PSL4. However, yesterday, when I logged into my student loan servicing sites to get the “high” of seeing my balances a wee bit lower, I noticed something…
PSL4 – 06/02/2021
PSL2 – 06/02/2021
Hint: Look at “Unpaid Interest” and “Outstanding Interest.”
Yea…so, despite the fact that PSL2 has a balance of -$6,827.01 and PSL4 has a balance of -$9,474.11, PSL2 generates the same amount of interest as PSL4 because it has an interest rate that is 1.36% higher. I feel like at this point I don’t have the right to be shocked by how terrible interest is anymore but AHHHHHH!
It was after the scream that my mind began opening up to another plan… My University Student Loans have a combined, weighted interest rate of 6.87% per month and a current balance of -$7,475.12. I was not really considering paying off these loans next, last September, however, seeing how significantly interest impacts debt repayment has put these firmly on my radar. I have hesitated to pay these off because they have friendly terms, including interest free forbearance if you enroll full time in school; however, that only seems important if I wouldn’t have these paid off by the time I would enroll full time next fall. If I am enrolled full time next fall.
The last and largest loan group are my federal student loans which have interest rates that go from kind to egregious. However, there is no incentive to pay these off ahead of my other student loans while there is a federal interest and payment forbearance (although it likely ends in September). Right now, it is my goal to whittle down my student loan balance as fast as I can before applying for a refinance on my federal student loans.
So…thoughts?
Ms. Afro Penny 
Hi I love this game. Could not wait to get over here and comment once I saw the situation in my email.
OK, but I picked PSL4, but I don’t actually feel very strongly about it. Mostly, I think it would be cool to get rid of one servicer altogether. That said, I’ve never liked your university loans much, despite the friendly terms. The interest rate is fairly high and they’re small, so it seems like you could kill them quickly and have four more $0s in the list. And PSL2 would also be a good target not only because of interest but because, with a smaller balance, it’d be easier to pay off faster so you could definitely pay off two private loans this year.
I guess as usual any debt payoff is excellent debt payoff so they’re all good choices. But I still do like the idea of you ditching a servicer altogether. Definitely approve of saving the federal loans for last.
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“Hi I love this game. Could not wait to get over here and comment once I saw the situation in my email.” Haha, you’re the best.
Thank you for the vote. I will admit it is what I would like to do (even though it would be unlikely to pay off both PSL3 and PSL4 this year) but I genuinely wanted to know what you all thought. I shouldn’t need it but it always feels really good to have other folks who know my entire financial situation weigh-in on my choices.
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This was such a tough decision but I chose PSL4, and I didn’t look at C’s vote or comment before I voted! I agree with C that you can’t go wrong with any debt payoff, and whichever you choose will be a good choice. That PSL4 has a high minimum payment and is serviced by the same provider as PSL3 is what most influenced me. As you mentioned previously, if you get into a tight situation financially for any reason, a smaller minimum will be easier to pay. And, I think it would be nice to say goodbye to one provider for good.
I think the university loans being friendlier does mean something. And PSL2 has that lower minimum payment. But their time will come!
Thanks for the vote. It was fun and I’m so interested to see what the final tally is!
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Thank you for the vote, Ellen! I really would like to ditch PSL4 for the reasons you reiterate. But as I shared in my response to C, it’s so great to have folks who know the entirety of my financial situation weigh-in on my decisions. Prior to having a blog I would only ever half-tell people things so their advice was only as good as how much I was willing to share. You all know it all so I greatly value what you share with me.
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Ok I voted without looking at the other comments first too. I was really on the fence between PSL2 and PSL4 but I ended up picking PSL2 because of the higher interest rate and lower principal balance remaining. I just think you’d be able to tackle the smaller balance down to $0 in a shorter time giving you the satisfaction of getting rid of a loan and allowing you to focus more money on PSL4 down the road.
With that said, I’m definitely swayed by PSL4 and by C and Ellen’s comments. Although I’m biased towards tackling higher interest rates, I will have to admit that it’s nice to get rid of a loan servicer altogether. So I’d say I’m 60/40 between PSL2 and PSL4, still leaning a bit more towards PSL2.
While I don’t like that interest rate on the university loan, I’m definitely all for you keeping it for the interest free forbearance for when you enroll in school (and yes I said when because I wholly believe you’ll get in to med school!)
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Thanks, Avery! (Sneaking over to your blog in a minute). I was tempted to pivot to PSL2 for the very reasons you mentioned. Ultimately, I’ve decided to end up paying next whatever you all decide. It really is helpful to make someone else make the choice when you are so “close” to the financial decisions.
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I would definitely go for PSL 4, for the reasons others mentioned. I did the same, paying off my car loan before some of my (federal) student loans because, even though the interest rate was slightly lower than some of them, the car loan had a much higher minimum payment and didn’t have the protections of my student loans. (And then those protections increased when the COVID forbearance happened!)
I did run the numbers to see how much faster PSL 2 could be paid off than 4, and it wouldn’t be enough to sway me. (With a $1,000 monthly payment, I got 8 months for #2 and 11 months for #4.)
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Thanks, Bee! And thank you for taking a moment to comment.
You are absolutely correct…the federal student loan protections can’t be overstated. When they a re all that remain, there will have to be another discussion as to whether or not to refinance. Gross interest rates make me want to say yes, but protections make me want to say no.
Your post made me run the numbers and I got something similar. I am hoping other income might help me pay these both down a bit faster but a $1000.00 seems like a reasonable minimum payment each month. I guess we’ll see how everyone votes.
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